Regional home prices declined in the 4th quarter, but so did the quality of the inventory.

The basic economic principle of supply and demand would imply that lower median home prices can be attributed to lower demand, but recently, that has not been the case. When the median suburban home price in Greater Philadelphia dipped 8.7% in the last quarter, inventory dropped with it – not demand. The number of suburban homes listed dove to a historic low of 13,230 – the first time supply has dropped below 15,000. (Inventory in the city also dropped to a 2.9 month supply with 3,329 homes.) With only 4.2 months of inventory, the suburbs are in general still a sellers’ market.

So why did home values drop?

It’s no surprise that home prices trend lower in the winter. Aside from seasonality, what stands out about the 4th quarter is the stark shift in home quality.

From Q1 through Q3 of 2017, 9.4% of suburban home sales were new construction while 6.01% were in below-average condition.

In Q4, only 5.2% were new construction and 13.8% were below average condition.

This report reflects what Houwzer Realtors are seeing on the street. “We're having our best January as a company, the most listings we've ever seen, and good condition homes which are priced well are going under contract before they even hit the MLS. Our Buyer Agents are reporting that they see overpriced-for-their-condition homes sit on the market for awhile until they bring it in-line with the market,” said Houwzer’s Director of Sales, Dave Speers. “It's a seller's market but there's a limit to how far they can leverage it."

There's another possible factor. The new wave of millennial homebuyers is here and they know what they want – affordable housing. According to NAR’s research, only 11% of millennial buyers purchase new construction homes. A large number of millennials are willing to take on a fixer upper to cut down on costs. Of those who chose to purchase a previously owned home, 69% reported doing so because of the affordability and overall value.

This impacts the suburbs more than you might think. According to the National Association of Home Builders, “a surprising majority of millennials aren’t necessarily interested in urban spaces, but still want a single-family home with a yard.”

When inventory drops and the largest demographic of homebuyers in the nation doesn’t budge, sellers must make a choice of how to respond to the demand. In Q4 of 2017, sellers may have chosen to accept the offer rather than wait around.

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A lot of things in life are too good to be true. As hundreds of our customer reviews show, Houwzer is not one of them. Understandably, our potential clients frequently ask us "how does Houwzer make money?" Answering this question starts with explaining how the commission in real estate works.